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  • Mortgages & Finance

    Freehold Leasehold Conflict

    Hi All

    Looking to your combined wisdom for advice or suggestions....Twice now we have been refused a BTL remortgage on a leasehold flat because the lenders do not like the fact that between my wife and myself we own all 4 flats in the property as a result of purchasing the flats individually over the years. This meant that we also acquired all 4 shares in the management company which holds the freehold and as such we "own" the management company and therefore the freehold.

    On two occasions now we have had everything approved in principal and with LTV ok'd , credit checks done, surveyors paid for and satisfactory valuations returned and offers even sent to our solicitors. However at the last minute both have raised the issue of the ownership of the Freehold issue and refused to proceed on the basis of a seeming conflict of interest.

    Broker telling me this freehold ownership issue is becoming more of a problem but this must not be an uncommon situation and I feel there must be is a solution out there. Would like to hear from anyone who has experience of this or has any ideas or suggestions as to lenders who are willing to accept this situation or a broker who is good in non straightforward situations. We have a good quality portfolio with plenty of equity overall and rental income is good and growing.

    Richard

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    Well I think you must be going about this wrongly. I have many clients who have no problems here. This is all about explaining the issue to lenders. Many of my clients have a house and then subdivide into say 3 flats and we have no problem with the mortgage. They still own the freehold and get individual mortgages on the leaseholds.

    The only things that may be issues are:

    - concentration risk but with 4 properties I cannot see that being an issue unless there are four large flats next to Buckingham Palace (and even then...).

    - whether it hits criteria for being a commercial let not a BTL. Even then mortgages are available.

    Much of the broking market is about understanding the situation, packing it properly (and truthfully) for lenders. I am stunned that we have had two messages on this point.

    Give me a call if you wish me to source your finance.


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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022


    Hi John

    Thank you for your input and yes I was taken aback when I heard this and was just wonering if it was an issue that others had encountered. However I will say that I am losing a bit of faith in my "new" broker and as you suggest maybe he did not have presented the case as he should have ... This must be about the 30th mortgage I have done over the years and have never had so much grief ! However it is the first time I have looked for financing in about 7 years and keep hearing things have changed ..... but I am not convinced that things have become that complicated. I am still waiting on a final decision from Vida after explaining in detail the structure of the management company ... I will let you know the outcome and I may well contact you re your offer to help.

    Richard


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    Hi

    If you own the whole thing, can you not remortgage the whole building as a multi-unit on one freehold with Paragon, for example? Or are you looking to do one flat only?

    I am not sure if you can do one flat deal while owning the rest (including the freehold) elsewhere easily. But I am not a broker!

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    Thank you for that ... am only looking at one flat but it might be worth looking into as a refinancing option if they would accept all 4 flats on seperate 999 year leaseholds.

    Richard

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    Hi Richard,

    Mortgage Lenders do not like it when the same person owns the Freehold Block as the Flat Leaseholder(s) that the lender has as security. Their is some horror story from the days of the crash, which did it's round in lenders risk management teams. In which a leaseholder defaulted on mortgage payments but remained the freeholder, making it very difficult for the lender to repossess and sell the flat. I can't remember in's and out's but it was a lot of court dates to get it all sorted.

    We have done these mortgages though after discussion with lenders. Some take a more risk based view and if they are happy with the security and the applicants they can take a view.

    We have done mortgages, where the lender insists that the freeholder is a seperate SPV Company than the leaseholders.

    As AvenuesLandlord says, we've also done mortgages in which there are no leaseholds but instead financed a Multi-Unit Block (MUB).

    It may be worth a chat, your adviser is right there are difficulties but there are options.

    (p.s. A management company typically does not own a Freehold, as in when they execute Right to Manage. They take some responsibility form the freeholder to manage certain aspects only. So this may be easier than that, unless im reading this wrong. )

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    _________________________________________________________________________


    The above post is not financial advice, its often me rambling - passing time on a coffee break.
    If you are looking for the Best BTL Mortgage? Call the Specialist Team at Bespoke Finance.


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